FRANKFURT/LONDON, Dec 7 (Reuters) - Chemical giant BASF agreed to merge its oil and gas unit Wintershall with DEA, a vehicle of Russian billionaire Mikhail Fridman, to create one of the largest independent oil and gas firms in Europe, the companies said.

Fridman and his partners in the LetterOne investment vehicle made billions by selling their Russian oil empire in 2013 but have since struggled to expand in the United States and Britain due to sanctions imposed on Moscow despite not being under sanctions themselves.

By folding DEA into Wintershall and creating Germany’s first oil champion, cash-rich Fridman could create new opportunities for growth in large Western markets.

For BASF it represents a second chance to diversify outside Russia where it is heavily present via ventures with gas monopoly Gazprom. BASF already tried to buy DEA in 2014 from German utility RWE but lost the race to Fridman.

“Wintershall DEA will be one of Europe’s largest independent exploration and production companies, with the scale needed to generate sustainable growth long into the future,” said Lord John Browne, the executive chairman of LetterOne Energy.

“Wintershall DEA, will be a German and European energy champion which can compete with those in France, Italy, and Spain. Very rarely do you have the opportunity to create a company of this type,” Browne, a former chief of BP, said in a statement.

The new company will produce around 590,000 barrels per day from fields mainly in the North Sea, Africa and Russia and have combined proven reserves of 2.1 billion barrels of oil equivalent.

BASF will control 67 percent of the new firm while Fridman’s LetterOne will own the remaining 33 percent.

BASF could increase its stake in the company at a later stage by folding into it its pipeline business, which was left outside the initial merger.

The new group would consider an initial public share offering (IPO) upon completion of the merger, which is expected in the second half of 2018.

In May, Kurt Bock, BASF chief executive, said profit contributions from its oil and gas unit were diminishing further amid weak oil prices. As a result, the group would focus on boosting profitability at its chemicals and crop protection businesses.

The drop in profits came amid a slump in oil prices and turmoil in Libya, one of Wintershall’s key sources of oil, following the fall of late dictator Muammar Gaddafi.

DEA became a growth platform for Fridman and his partner BP sold Russian oil venture TNK-BP for $55 billion in 2013 to state-controlled oil major Rosneft.

DEA’s expansion in Britain and the United States has been hampered by Western sanctions on Russia with DEA unable to close a deal to buy gas fields in Britain’s North Sea as well as shale oil and gas companies in Texas.

German daily Handelsblatt had earlier reported a deal was imminent. (Editing by Adrian Croft)